Introduction:   Founded in 1995, DailyAccess Corporation (DAC) is an independent retirement provider offering recordkeeping and administration to DC plans on a national scale.  DAC was a true startup company and while they have less scale and resources than major competitors, the Mobile, Alabama-based firm became profitable a few years ago.  The firm has also grown in recent years, but they have always focused on quality business.

DAC is often mislabeled as an on-line recordkeeper, but they are really a sophisticated platform for serving open architecture retirement plans with one-on-one service.  DAC uses the internet and automated processes to enhance the client experience, but they are clearly in the people business.  Through a proprietary platform, the solutions-based firm uses technology to support high touch service and they are known for flexibility, customization, innovation, process automation, user friendliness, highly trained personnel and high quality service. 

From a resource standpoint, DAC's primary focus is on the advisor and their retail open architecture program.  However, the hybrid firm offers services to partners, providers looking for outsourced recordkeeping and TPAs.  DAC also supports joint distribution (coopetition was discussed at the 2004 Advisor Conference) and they appear to be positioning full service outsourced recordkeeping as an alternative to the ASP model. 

DAC is also easy to do business with, advisor friendly and they do not sell direct.  The firm's moderate wholesaler staff is geographically dispersed and they support commission-based business and RIAs.  All plans are serviced in partnership with advisors and the firm is well regarded by the advisor community.  As noted, the firm's distribution strategy is based on advisor relationships, investment flexibility, solutions and superior service.  

DAC’s independence and flexibility positions them to capitalize on the trends toward open architecture and fee-based/RIA type business.  Open architecture providers have improved significantly in recent years and advisor friendly firms with sales and marketing support are in a position to increase market share with sophisticated advisors.  Transaction type brokers and structured programs, particularly insurance company programs with added value could, however, remain dominant below the $3 million market. 

DAC is gaining traction as an open architecture provider with superior service, but they must use their resources effectively.  The company was built for scale and the developing market for full service recordkeeping outsourcing could also provide a major opportunity as an alternative to the ASP model.

DAC has tweaked its management structure in recent years and I am now the President and CEO. Before co-founding DAC in 1995, I spent five years focusing on the retirement market as a Financial Consultant at Merrill Lynch and owned a RIA shop.

Greg Wood joined the firm in 1997 and he is our Chief Operating Officer, responsible for operations as well as sales and marketing. Carl Dekle also joined the firm in 1997 and he is our Chief Financial Officer. In addition to his financial responsibilities, Carl contributes to our business development and firm level relationships.

DAC currently services about 830 DC plans with $3.5 billion in assets and 100,000 participants. Our open architecture retail program represents about 85% of total plans and 90% of assets. In terms of new sales, the retail program represents about 90% of new sales. We have about forty TPA relationships, but the majority of retail sales are sold on a bundled basis.

Our plans are getting bigger and I would estimate that our average new retail sale has about $4 million in assets and about 100 participants. We are focusing on the mid market and DAC closed more plans between $20-$75 million in 2005 than any single year in our history. As you noted in the introduction, we team solutions with high touch service, but we do not sell direct. In other words, all of our plans have an advisor partner.

The system has a core of Relius and proprietary applications. All Web development is proprietary as well as work flow control, internal data access to the underlying recordkeeping system. We are in the process of replacing our proprietary trading systems with Delta Data Software's FUNDLinx™ product.

Our disaster recovery plan has been successfully tested and proven a couple of times in the last 12 months. We use SunGard Business Continuity Services for backup. Constant upgrade and enhancement of the plan is part of our strategy and we actually practice what we preach.

We have a tri-party trading arrangement with Reliance Trust Company (RTC), Atlanta, GA, that has been in place since 1998. Our processing systems are fully integrated with their custody/clearance/settlement and cashiering systems, which means the links are fully automated. We capitalize on RTC's trust capabilities such as portfolio unitization for SMAs, their linked brokerage services and many other services that they offer. There are about 45 fund families on the DAC/RTC platform so it is primarily utilized for the commission-based business.

The second platform is a two-party arrangement with FRIAG. In this arrangement, we still use RTC's automated links for the cashiering function, but custody and trading is at Fidelity. Primarily utilized for RIAs, this platform has 12,000 mutual funds available.

Quantitative analysis has helped feed the perception that retirement products are commodities, but how can service be a commodity? Keep in mind that all retirement providers are in the service business. Like any purchased service, one buys a retirement product based on expectations, but you really don’t know what kind of service will be provided until it is actually given. Provider evaluation generally includes ratings, references and surveys, but there should be more to the process. Given the complexity of the industry, fiduciary responsibility and regulatory requirements, providers, products and their capabilities are clearly not commodities. Indeed, intellectual capital, operating capabilities, financial strength, stability, management, willingness to become a partner and managing the resources to meet regulatory needs are anything but commodities. Unfortunately, the complexities of the back office are beyond the ability for those without experience to evaluate and many decisions are made purely on pricing.

Pricing is what most people think they understand, but it is not an efficient way to determine if a provider can truly meet plan and participant needs. Value in pricing is important, but commodity type pricing and quantitative analysis are not enough. I believe the industry places too much emphasis on both and does not give enough legitimacy to qualitative “know how.” In other words, service is not a commodity, but rather something that is worth a premium. The key is identifying the difference between those that sell product and those that provide service. Service providers that can’t distinguish themselves are not suited for commodity type businesses and won’t be around too long.

For definition purposes, I would categorize TPAs as:

 - Administrative Consultants (ACs)

 - TPA/Recordkeepers (TPA/Rs)

 - Recordkeeping Platforms (RPs)

ACs are firms that define themselves as industry and regulatory experts on retirement plan administration. They typically provide services in a balance forward environment or perform no recordkeeping at all.  Intellectual capital is their primary business driver.  These firms generally utilize annuity products and provide consulting to plans with non-daily traded assets at multiple custodians. Like ACs, TPA/Rs offer administration and consulting services, but they also provide recordkeeping.  They could be providing services in the form of proprietarily developed legacy systems or the acquisition and maintenance of recordkeeping software from systems providers like SunGard/Corbel or Schwab RT.  They could also be using a systems solution in the form of an “Application Systems Provider.”  These firms often utilize internal recordkeeping and bundled products from insurance and fund companies.  RPs typically allocate their resources to recordkeeping and processing, but they may also offer administrative consulting as an adjunct.  In addition to their recordkeeping operations, these firms have electronic links to trading and asset custody partners on an integrated basis.

The trends speak for themselves. The regulatory environment, however irrational, is becoming more punitive to providers and sponsors. Flexibility and choice are competitive absolutes while margins are under commodity type pressure. The big are getting bigger and the small are struggling to remain competitive.

The mid-market is the battlefield and while direct-sold providers have their place, advisors are moving up market in a big way. Registration is now a competitive disadvantage, but full fee disclosure and processing efficiency are absolutes. The majors are coming down market and the fund companies are also forcing providers to adhere to irrational, non-standardized and costly trading restriction policies. ACs and TPA/Rs have options. The ASP and FSRO models both have merit, but potential users must evaluate their own business plan and learn more abut the advantages and disadvantages of each model before making a decision.